Osborne attacks Labour over tax

Chancellor George Osborne has accused Labour of planning a secret “tax bombshell” which could add 3p to income tax or three percentage points to national insurance.

In an interview with the Sunday Times, Mr Osborne also hinted he may promise cuts to inheritance tax ahead of May’s general election, and repeated his insistence that – contrary to Labour claims – he has no plans to hike VAT.

Mr Osborne is hoping to flush out Labour’s tax and spending plans by tabling a new Charter for Budget Responsibility, which will be debated by MPs on Tuesday.

The proposed Charter would commit the Government to a goal of eradicating the structural current deficit on a rolling three-year horizon – which at the time of the next Budget will be 2017-18 – and ensure that debt is falling as a percentage of GDP by 2016-17.

Shadow chancellor Ed Balls says his party will back the Charter. He has committed Labour to eliminating the current deficit “as soon as possible” within the next Parliament.

But Mr Osborne said this would mean tax rises or extra borrowing because Labour has not committed to matching his plan to achieve the necessary £30 billion consolidation by cuts to spending and welfare payments.

The Chancellor has suggested the full consolidation can be achieved in 2016 and 2017 without the need for tax rises by slashing £13 billion from Whitehall spending and £12 billion from benefits and raising £5 billion from tackling tax avoidance.

Liberal Democrats have said 20% of the sum should come from tax rises, and Mr Osborne suggested Labour could raise that figure to 50%.

The Chancellor said: “If you take that approach, half of the £30 billion would be £15 billion in tax. That is the equivalent of 3p on income tax to hit working families or 3% on the jobs tax.

He wrote to Labour leader Ed Miliband demanding that he spell out his plans, saying: “Voters at the general election deserve to know how the Labour party would deliver the £30 billion of consolidation. Large tax increases would be catastrophic for our economy and for family budgets.”

Mr Osborne said: “Ed Miliband and Ed Balls are trying to pull off a grand deceit. They are trying to get away without saying what their real plans are.”

He told the Sunday Times: “If you do not support my public expenditure plans, you are either offering the country a tax bombshell or a borrowing bombshell or both.”

Tories promised in their 2010 manifesto to raise the threshold at which inheritance tax is paid from £325,000 to £1 million, but the change was blocked by the Liberal Democrats in coalition.

The Chancellor hinted that the Conservative manifesto for 2015 could include a pledge on the death duty: “David Cameron has made it clear, as have I, that we believe inheritance tax is a tax that should be paid by the rich and we will set out our further approach closer to the election.”

Labour has repeatedly claimed that Mr Osborne is considering a post-election hike in VAT to pay for a £7 billion income tax cut promised by Tories, for which no funding has yet been identified.

But Mr Osborne insisted: “I couldn’t have been clearer that our plans do not involve tax increases, including VAT, because our plans involve cutting public expenditure and saving on welfare budgets.”

Responding to Mr Osborne’s claims about Labour’splans, the party’s Treasury spokesman Chris Leslie said: “These are yet more made-up numbers from a Chancellor who has raised taxes on working people and failed to balance the books.

“His new charter is full of holes – it simply says we should ‘aim’ to balance the budget on a rolling three-year target.

“There are three ways to get the deficit down fairly – sensible spending cuts, fairer choices like reversing the Tory tax cut for millionaires and delivering rising living standards for all.”

Commenting on suggestions the Tories could promise to cut inheritance tax, Mr Leslie added: “The Tories are making more unfunded promises which add up to billions of pounds a year. These could only be paid for by even deeper cuts to public services or tax rises on working people.

“George Osborne has still failed to rule out another Tory VAT rise. He simply says he has no plans to raise VAT, but that’s exactly what the Tories said before the last election – a few weeks before the Tories raised VAT.

“Labour will cut taxes for working people with a lower 10p starting rate – and we’ve said exactly how we’ll pay for it.”